Interplay between Disability Benefits and Bankruptcy

By Bonny Rafel

Disabled consumers filing bankruptcy face a dilemma; they need to continue to receive their disability benefits, but are legally obligated to disclose all “assets” on the bankruptcy petition. Consumers should note that by acknowledging this asset to the Bankruptcy court, the trustee in bankruptcy may be able to preserve this benefit from the creditor’s reach, and protect the claimant’s right to continue to receive this monthly benefit. If the consumer does not disclose this disability benefit on his petition, the insurance company paying the benefit may later claim they hid an asset.

Courts have used “judicial estoppel” to prevent a consumer from hiding the asset in bankruptcy court while seeking continued disability benefits in later litigation against the insurance company. See Acuna v. Conn. Gen. Life. Ins. Co.. Judicial estoppel means that a decision on the matter has already been made by a court and thus, the individual is prevented from bringing up the matter again in litigation.

Some courts draw an inference that the consumer had a motive to conceal the disability claim from the reaches of bankruptcy creditors, so a careful review of this interplay is vital. Bonny G. Rafel LLC can assist you with this difficult assessment.